IMF Staff Completes 2021 Article IV Mission to Morocco

IMF News, December 10, 2021

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IMF staff find that "Morocco’s economy is rebounding."
GDP contracted by 6.3 percent in 2020 and is "forecast to grow by 6.3 percent in 2021."
GDP growth is projected at "around 3 percent in 2022."
Recovery drivers identified: "continued fiscal and monetary stimulus, the rebound of exports, buoyant remittances, and the exceptional harvest after two years of drought."
Recent inflationary pressures "have remained manageable and are expected to wane in the medium term."
Current account outlook: "After last year’s sharp contraction, the current account deficit is projected to return this year to levels closer to before the pandemic and to stabilize around 3.5 percent of GDP over the medium term."
Reserves: "Morocco emerges from the pandemic with a much stronger international reserve position."
Risks: "This outlook remains subject to uncertainty, with much of the risks depending on the evolution of the pandemic."

Fiscal stance in 2021: despite an "expected reduction of about 1 percent of GDP of the fiscal deficit," fiscal policy "has remained expansionary."
Key drivers of 2021 fiscal outturn: "acceleration of current spending (driven by higher public sector wage bills and social contributions) more than offsetting the increase in tax revenues in line with the economic recovery."
2022 Budget: "foresees a slightly lower overall deficit as percent of GDP."
Policy recommendations:
- "Further reduce the overall fiscal deficit and bring the debt-to-GDP ratio closer to its pre-pandemic levels over the medium term."
- Implement "further changes to the tax system, to increase its coverage and progressivity in line with the principles contained in 'Framework Law'."
- Continue "efforts to rationalize and optimize public spending."
Note on reform sequencing: "Given the large financing needs associated with these reforms, their uncertain timing of their impact on potential output, and the narrow fiscal space, it would be important to carefully design and sequence the reforms, on the basis of an adequate financing plan and a coherent and stable macroeconomic framework."

Bank Al-Maghrib (BAM) actions: "kept its policy rates unchanged and maintained its wider liquidity provision to support the banking sector."
IMF staff stance: "supports the accommodative monetary stance, especially as inflationary pressures remain contained and inflation expectations well anchored."
Exchange rate and policy framework: "The recent appreciation of the dirham and the uncertainty over the transitory or persistent nature of these pressures, provides a good opportunity for accelerating the transition to an inflation-targeting (IT) framework."
Banking sector resilience: "Moroccan banks have weathered the crisis well, thanks to the prompt and exceptional support from BAM."
Prudential measures: staff "welcomes BAM’s decision to lift most of the prudential measures introduced to support the banking sector during the pandemic crisis."
Recommendations for financial sector reforms:
- "Keep ensuring that banks continue provisioning against impaired loans."
- "Accelerate the development of a distressed debt market together with other relevant authorities."
- "Finalize the legal framework to strengthen the bank resolution framework."

Staff "welcome the authorities’ determination to implement the structural reforms proposed as part of the New Model of Development (NMD)."
Expected outcomes from NMD reforms: "stronger, more inclusive, and sustainable growth path for Morocco."
Areas of ongoing or proposed reform: "social protection, state-owned enterprises (SOEs), and education system," plus measures to "improve competition, strengthen Morocco’s competitiveness, encourage formality, and improve the trust in the public sector and judicial system."
Financing and sequencing emphasis: "Given the large financing needs associated with these reforms, their uncertain timing of their impact on potential output, and the narrow fiscal space, it would be important to carefully design and sequence the reforms, on the basis of an adequate financing plan and a coherent and stable macroeconomic framework."
Social protection: "Reforms to extend social protection to all Moroccans remain a priority, together with efforts to boost private sector development."

Since 2012, Morocco "benefited from four successive PLL arrangements with the IMF."
On April 7, 2020, Morocco "purchased all available resources (about US$ 3 billion) under the Precautionary and Liquidity Line (PLL) arrangement."
Repayments and subsequent actions: "the authorities have repaid SDR 651 million in January, after tapping international markets."
Ongoing engagement: "a close policy dialogue between the authorities and staff will be maintained."

IMF Staff Completes 2021 Article IV Mission to Morocco — Press Release No. 21/370 (December 10, 2021).